February 24, 2011

In case you missed it, there's a revealing YouTube recording of a converation between Gov. Walker of Wisconsin and Ian Murphy, who called the Governor's office posing as David Koch. YOu can watch the video here (the video is in two parts--the second video should appear as a side link).

The Koch brothers' family fortune is based primarily in oil, and they have benefited hugely from the various subsidies provided for Big Oil by the federal government. Politically, they are Ayn Rand acolytes--radical libertarians who view most people as mere "parasites" and themselves as the producers meritoriously entitled to everything they have and more. Accordingly, when David Koch ran for vice president on a libertarian ticket decades ago, he stood for abolishing things like Social Security, federal regulatory agencies, welfare, and public schools. The brothers are worth about $20 billion apiece, and they have been and are using that money to push their radical agenda throughout the countrym "funnel[ing] money through 501c3 tax-exempt foundations, and [giving] money to other foundations, lobbying organizations, and right-wing think tanks. They have PACs; they support candidates. [They fund] Tea Party groups Americans for Prosperity, FreedomWorks, and Citizens for a Sound Economy." See, e.g., Peter Fenn, Tea Party Funding Koch Brothers Emerge from Anonymity, US News, Feb. 2, 2011 (relying on Jane Mayer's reporting in Covert Operations, The New Yorker (Aug. 30, 2010), that the Koch brothers spent $196 million over the last ten years to support conservative causes and institutions).

It shouldn't be surprising, then, that the Koch brothers are involved in the Wisconsin GOP governor's effort to kill public unions. See, e.g., Rick Ungar, Koch Brothers Behind Wisconsin Effort to Kill Public Unions, Forbes, Feb. 18, 2011 (noting that Koch owns a coal company subsidiary in Wisconsin, timber plants in the state and pipelines, and has laid off workers to boost profits).

Walker bragged about the various ways he had thought up to threaten the Dems to enable the anti-union vote. He was consistently ingratiating with the Fake Koch. He bragged about the way he is getting media coverage and that his anti-union effort is spreading to other states with newly elected right-wing governors (Kasich in Ohio, Scott in Florida, Snyder in Michigan) and that all they have to do is adopt his "don't budge" posture to finally do this. When Fake Koch asks him at the end "what else can we do fer ya?" Walker essentially response by saying that "the more groups there are calling lawmakers to tell them to hang in there, the better" [coordination with Fake Koch to get Koch-funded groups making "citizen" calls to lawmakers to support union busting?] and ""in the weeks ahead, the guys will need the message reinforced why this is good for the economy and the state" [coordination to continue to spread misinformation claiming that unions are the cause of the deficit]. And the most chilling is Walker's response to Fake Koch's suggestion that "we'll back you up. We're considering planting some troublemakers" : Walker says "We thought about that". He goes on to say that he decided against it since that would just get media attention and he is comfortable ignoring them. After some more blathering about liberals and the media, Fake Koch says "good catching up" and Walker responds "Yeah, this is an exciting time" and tells Fake Koch about a cabinet meeting he held "right before we dropped the bomb" where he drew a direct parallel with Reagan's union-busting moment with the air traffic controllers and said this union-busting moment in Wisconsin "is our moment; this is our time to change the course of history."

If you don't have time to listen to the full conversation--Gov. Walker did 90% of the talking, with comments like "beautiful" or "time to crush those [union] bastards" from the Fake Koch on the other end of the line-- here are a few excerpts from my own hastily jotted notes (bolded statements below are ways Walker said he is planning to push the Democrats to be there so the Senate can vote to bust the unions).

Walker on how he is going to make Dems let the vote to end collective bargaining on most everything take place

If the Dems are not there for two days, then the Senate clerk will stop the payroll process--they'll still get a paycheck, but they will have to be present to pick it up, and when they come to the Senate office to do so, they will be "locked in the desk".

(in response to a question whether Walker is talking with the Democrats)

I'm talking to one guy only (later identifies him as Tim Cullen). He's the only reasonable one. I'm telling him that I'm not budging.

Fake Koch suggests that he will call Cullen and put pressure on him.

Walker responds "He's reasonable, but he is not one of us...he is not an ally...But [after he worked in the public sector for a while] he was in the private sector and made some real money so he [humorously stated] became more open-minded"...he's not a conservative, just a pragmatist."

(in response to a question on who they could get to budge on the collective bargaining issue)--Walker responds that he is "trying four or five angles" :

the paycheck (see above) is one thing;

another effort is to see if they can hang an ethical or even a felony on the Dems if they can show that the "unions are paying to put them up out of state" because that wouldn't be "just political" it would be "being paid to keep from doing your job" so Walker noted that he had the Attorney General looking into that;

And he remarks (very cheerfully--as though this is the greatest thing in the world) that layoff notices are ready with the "at-risk" notice going out next week to five or six thousand workers and maybe he will "ratchet that up"

Fake Koch responds "Beautiful--we have to crush the union"

Walker answers (paraphrased) "I'm not caving; I've done this on every battle and I've won. They'll be sacrificing thousands of state workers." (said almost gleefully)

Walker says that (paraphrase, but fairly close to a full quote from my quick scribbling) "another interesting idea that they are thinking about is an appeal to the Democratic leadership to talk ("not negotiate") but to require that all fourteen will have to come back and sit in the Assembly and then they can recess to come over here and talk to me, because legally, once they are there and in session they don't physically have to be there, so the 19 Republicans would then be a quorum and can pass the bill without the Dems being there. And when they come over, I'll talk. They can yell at me for an hour, who cares." (ho ho)

Fake Koch's response was "yeah, and you could have a big baseball bat"

Walker responded with a jolly laugh "You'll be glad to know I do have one" (ho ho ho).

NB: At a point towards the end of this particular part of the conversation, Walker says that there are only a few "radicals" among the Democrats and that most of them are just "scared and would like to get it over with" so he thinks the paycheck gambit and the other things he is "threatening them with" will work

Walker's conversation suggests a complete lack of any sense of sympathy with the thousands of workers whose pension rights, rights of association and livelihoods he plans to end. It suggests a comaraderie with wealth that is the underlying foundation for the governing philosophy of this oligarchic-sympathising, plutocracy-promoting governor. The baseball bat "joke" and the use of words like "lock em in their desks" and "threatening them" and bragging about layoff notices all reveal an unsympathetic picture of a person who looks up to money, power and privilege and simply doesn't give a damn about ordinary folk. The fact that Walker admits considering "bringing in troublemakers" suggests a clear violation of his oath to protect the citizens of Wisconsin, and a clear ethical violation for an employer in dealing with his employees. [Added 4:56 pm It looks like others have recognized the "unsettling" nature of Walker's easy admission of considering hired thugs to make trouble for protests. See, e.g., Sargent, Madison police cheif finds Scott Walker's comments about protestors 'disturbing', The Plum Line, Washington Post, Feb. 24, 2011 (quoting Madison Police Chief Noble Wray as saying "I find it very unsettling and troubling that anyone would consider creating safety risks for our citizens and law enforcement officers").]

The state of Wisconsin could easily afford tax increases. Laying off thousands of state workers will only deepen its fiscal woes.

February 22, 2011

Paul Krugman's op-ed on the "Wisconsin Power Play" (New York Times, Feb. 20, 2011) is worth reading. As he notes, it isn't about the deficit (not much is that the GOP claims to be these days). It's about power--the power to bust public employee unions (before private workers get dangerous ideas about the benefits of collective bargaining).

You might also want to catch the comments on Thoma's post of same at Economist's View, including this one from E Michael who notes that in Wisconsin Governor Walker's budget bill is a proviso for the sale of state-owned heating, cooling and power plants:

"16.896 Sale or contractual operation of state−owned heating, cooling, and power plants. (1) Notwithstanding ss. 13.48 (14) (am) and 16.705 (1), the department may sell any state−owned heating, cooling, and power plant or may contract with a private entity for the operation of any such plant, with or without solicitation of bids, for any amount that the department determines to be in the best interest of the state. Notwithstanding ss. 196.49 and 196.80, no approval or certification of the public service commission is necessary for a public utility to purchase, or contract for the operation of, such a plant, and any such purchase is considered to be in the public interest and to comply with the criteria for certification of a project under s. 196.49 (3) (b)."

The bill would allow for the selling of state-owned heating/cooling/power plants without bids. And E Michael quotes another blogger who notes that this is "like a highlight reel of all of the tomahawk dunks of neo-Gilded Age corporatism: privatization, no-bid contracts, deregulation, and naked cronyism. Extra bonus points for the explicit effort to legally redefine the term “public interest” as “whatever the energy industry lobbyists we appoint to these unelected bureaucratic positions say it is.”

This is the agenda initiated by Ronald Reagan--deregulation, privatization, tax cuts, and militarization--laid bare. Remove power from ordinary people. Put state assets in the hands of the already well-heeled through exercises of naked cronyism. Cut taxes for big business and the wealthy even while cutting back on services for the middle class and poor and increasing taxes (sales taxes, payroll taxes) for those same groups. The only part of the Reagan destructive agenda that Walker apparently isn't doing is increasing the military budget for ridiculous projects that line the coffers of the wealthy military-industrial complex.

Look at the states, where GOP governors are using deficits caused by long-term tax cuts and low taxes that didn't raise enough money to pay their pension obligations that they could easily have funded to now benefit (again) big business and the wealthy. The wealthy double-dip and the poor, the middle class, and those faithful government employees who put in years of labor with the expectation of at least getting their promised pensions at the end get shafted. Instead of raising taxes equitably and cutting only those programs that are dross, the governors are on a union-busting program. Why bust unions? Because if the average worker at the average private job ever realizes that unions are the way to get a fair shake from their employer, the wealthy managers and owners of the big corporations will have to share some of their filthy lucre gotten from the increased productivity with their workers in the form of wages and benefits. Why, private workers might even find they should form an alliance with public employees, who already understand the importance of unions allowing them to have some collective power in respect of their employer. Gotta stop that, says the GOP mindset.

Look at the federal government, where the same Republicans insisted that deficits don't matter when they were passing huge tax cuts for the wealthy and big business and and insisted that the poor didn't need the "making work pay credit" . The wealthy and big business double dipped--low taxes, great benefits, while the poor sacrificed. Now these same Republicans are now insisting on cutting out anything in the budget that benefits the middle class or poor--or puts any obstacles in the wealthy class's and big business's rapacious exploitation through casino speculation. Picking an arbitrary number that just happens to amount to huge proportions of the piddling amounts we spend on Head Start, pollution control, tax enforcement, and programs for the needy, the GOP is aiming to cut cut cut. But at the same time, all those things that benefit the wealthy are off the table. Regulation of pollutants or of drilling? Gotta stop it. It might prevent those who own most of the financial assets from making exploitative profits from natural resources. Enforcement against tax cheats? Gotta stop it by cutting funding for tax collection efforts against wealthy tax cheats (again--as the GOP has done whenever it is in control). Making big corporations like GE (effective tax rate less than 15%) and Yahoo (effective tax rate less than 10%) pay their fair share of taxes to support the legal, patent, transportation, communication and tax subsidies that have made their businesses wealthy by preventing their transfer pricing and leverage games? Gotta put an end to any such thinking, the GOP apparently believes, or its favored MNEs will have to return to paying taxes equal to a much bigger share of the GNP.

This country succeeded in the post-war years with very high taxes and significant expansion of government because it supported programs that spread growth broadly and allowed the formerly impoverished to share in the growth. Now we are moving against our core principles, creating an oligarchy whose GOP minions will see to it that government exists as a tool by for and of the wealthy and the big corporations. That future may suit Ayn Rand, who basically viewed anyone who got wealthy (whatever the means--though she claimed it was based on 'merit') as a "good guy" and everybody else just fodder for their exploitation.

It is true that our history is riddled with ruthless men who exploited anyone in their path to wealth. The railroad barons of the mid 19th century come to mind--they set up separate corporations to receive the largess from the federal government and avoid paying the workers that they exploited (treating Chinese immigrants as expendable cogs in their money-making machine). Those who set up mines on government lands--and under the 1872 mining act pay no royalties whatsoever to the American people for the wealth they extract from OUR lands--similarly exploited their workers, doing as little as possible for safety. At every stage, titans of commerce make their fortunes by exploiting workers and passing off to the public as externalities the harms of their commerce--oil spills, water pollution, air pollution, destruction of natural habitats, chemical toxins in lakes and land, abandoned megastores, abandoned factory shells, union busting that leaves workers with a pittance while the privileged CEO class wines and dines on the productivity of the worker, shadow banks that buy up productive firms (often with leveraged buyouts using the firms own profits to pay for their acquisition), fire workers and move the company offshore or split up and sell its assets to reap a quick profit, damn the workers; mortgage mills that swindle unsuspecting borrowers and then swindle unsuspecting investors; bankers willing to reap casino gambling profits (often from insider knowledge of their clients' plans or from knowingly hawking risky products) with no concern for the integrity of the system.

These things are inherent in unregulated "casino" capitalism--it is a brute force that favors oligarchy and plutocracy, greed and rapacious excesses, destruction of the environment and exploitation of ordinary people. In a democracy it demands to be controlled by the people so that the excesses are limited, and the nation's resources--waters, land, air, workers and human capital--are protected.

At this point, the GOP is assisting in the rape. There is enough excess in the military expenditures to account for every penny that they want to cut from needed human capital and physical infrastructure programs. They just don't want to go there. And the Democrats are not stopping the pillage.

February 19, 2011

There is concerted effort to portray Social Security as ruining the country by being a significant cause of the current deficit , and this is not accidental. Social Security has been funded by payroll taxes that are supposed to be dedicated to the payouts. But the GOP since Reagan has worked to cut income taxes and increase military funding (especially with the Bush "pre-emptive" wars of choice that Stiglitz now says will cost us a minimum of FIVE TRILLION), and has borrowed from those Social Security pension funds to pay for those tax cuts and military excesses. It's the tax cuts and runaway military spending that are choking this country's economy, not Social Security. That fact gets lost unless Social Security's income and outflows are portrayed fully. It's a fact that the GOP wants to be lost, I think, along with the overall amount of military and related spending in our budget.

The cost of treating Social Security as part of the deficit is that workers who have been locked out of sharing in productivity gains will pay, while the benefits have gone especially to the upper class that owns most of the financial assets and most of the military-industrial complex.

The deficit hype appears to be a concerted effort, in other words, to destroy the programs that were created in reaction to the colossal inequities that were contributory causes of the Great Depression and were intended to safeguard the broad-based society that is essential to democracy, one where growth is shared and everyone has opportunities. I just found that Robert Reich has similar thoughts, noting that this is a divide-and-conquer strategy built on three kingpins: the battle over the budget, the assault on public employees, and the distortion of the Constitution. See The Real Republican Strategy, Salon. What the GOP aims to do, I suppose, is to weaken the 90% who aren't in the race to be the richest plutocrats of the country, and make sure that they secure the spoils for those at the top.

It would seem that the GOP is using this moment to

Get rid of programs that have advanced gender equality.

See Rebecca Traister, This is what pro-life means?, Salon.com, Feb. 18, 2011, noting that "Morality is on the side of women, on the side of children, on the side of a society that offers aid to its impoverished and to its young and does not discriminate against half its population. In Moore's words, 'Planned Parenthood is healthy for women, it’s healthy for children, and it’s healthy for our society.' " The post includes a video of Rep. Jackie Speier's impassioned response to the lack of understanding about abortions.

See, e.g., Top 10 Shocking Attacks from the GOP's War on Women, MoveOn's political action group, noting the attempt by various state and federal Republican groups to reduce access to abortions and redefine victims of rape (but not of other crimes like burglary) as mere "accusers"; expand legitimate "defense" to permit killing abortionists; cut funding for food and other assistance to low-income pregnant women and families; allow hospitals to refuse abortions necessary to save a woman's life; eliminate preschool programs for poor kids at state levels and Head Start at the federal level; cut funding for services for the elderly poor (most of whom are women); cut all funding for Planned Parenthood; cut all funding for family planning.

Get rid of public employee unions (and reneg on pension promises made years ago at the same time).The mainstream media has lapped this up like the lapdogs they are. See, e.g., Wall Street Journal, New York Times stories.

Gov. Walker in Wisconsin--the state where there is a pitched rhetorical battle to get rid of public employee unions and defund public pensions--did not inherit a budget shortfall. Like at the national level, GOP policies are driving the attack on public employee more than the actual deficits involved--especially since those shortfalls at states are related to the toll of the Great Recession and to states' long-term habits of borrowing from Peter (their own employees' pension funds) to pay Paul (e.g., their other creditors or even their wealthiest taxpayers who were spared taxes by the borrowing). See, for example, Mark Thoma at Economist's View on the spreading use of recession-induced budget gaps to target unions. Gov. Walker has pushed the "tax cuts create jobs" idea, signing various business tax cuts into law. See Walker Gins Up Crisis to Reward Cronies, The Cap Times, Feb. 16, 2011; Wisconsin Legislative Fiscal Bureau, annual review of the State's Fiscal Status (Jan 2010) ( even with the recession and various changes that caused the state to have less revenues, projecting a surplus of more than $55 million at the end of the 2009-2011 biennium which, though below the statutory surplus of $65 million required, means that the state was still doing well); Walker Signs 2 More Business Incentive Bills, Journal Sentinel, Jan. 31, 2011. Exacerbating the future shortfall created by the tax cuts, the state has about $260 million of unfunded obligations-- from taking $200 million out of a dedicated fund for general fund purposes and from an unpaid obligation to Minnesota under a tax reciprocity agreement (an obligation that is earning interest at more than $4000 a day). So the public employees aren't the cause of the state's problems.

This is particularly worrisome for higher education. See Inside Higher Education story on impact on Wisconsin academics. These attempts to hit public employees generally start with some of the studies that suggest that public employees have better benefits than private employees. As noted in earlier posts, that is debatable. Commensurability is a problem, since many state and federal government jobs require higher education and experience levels. Wages are negotiated in exchange for better long-term benefits, which the states are now talking about reneging on. It's as though the private industry owners wrote the following script based on this "time to get even" rationale.

for years, we have underpaid our workers while keeping all the productivity gains for ourselves and paying ourselves knock-out pension and health benefits.

We've made sure that workers couldn't unionize, by spending lobbying dollars to fight fair systems (like card-check) and using all the powers of the employer to intimidate workers (see, e.g., Wal-Mart's long history of unfair labor practices).

Now it is clear that unions do benefit workers--just look at the fact that public employees have decent wages and benefits because they are able to bargain collectively with a decent employer that doesn't use these methods to squelch workers.

We've got to stop that--let's paint a picture of underpaid private workers who have very little in benefits, in order to incite jealousy of public workers.

Then we can use the deficit that we created by evading taxes, lobbying for tax cuts, and charging ridiciulous amounts for contracts through the military-industrial-banking complex to justify taking away both the benefits that public employees long ago gave up wages to receive and the collective bargaining rights that allowed them to get decent wages and benefits.

After all, the alternative would be for workers in our industries to realize that they've been cheated by not sharing in productivity and not being permitted to unionize.

We can't have that--they might get some share of the wealth that has been increasingly accruing to us.

And we deserve all that wealth, because we've run our companies so well by making sure that they can't unionize and that workers understand that they, not us, are expendable.

﻿

Hamstring or get rid of the EPA --The script here sounds very familiar.

We can't have the EPA regulating carbon dioxide. That would cut back on our profits. So what if we are contributing the the rapidly accelerating global warming debacle. We just can't have environmental safeguards preventing us from making a killing (in more than one way) with oil and ore. If we want to use highly toxic chemicals in fracturing rock to extract gas, we should be able to do it. That's the free market we believe in. Free for us, risky for those who have to clean up after us (remember the Great Recession and TARP--same thing).

Get rid of public broadcasting. Public Broadcasting has provided a voice for diverse perspectives in local communities that otherwise are completely left out of commercial media for lack of the funding to buy a way in. But that voice is not necessarily monotonal--it often has religious or conservative perspectives, but it also permits liberal or atheistic perspectives. So call up the script again, which in this case might go something like this:

hey, we've allowed media companies to consolidate so that most are owned by a very few media conglomerates (Rupert Murdoch, SONY, Sinclair, etc.). That's great for us, because it permits us to control the way things are cast. Look at how Murdoch has made even the conservative Wall Street Journal a right-wing rag on our side--not just the op-ed pages anymore, but the way the stories are chosen and cast. PBS, on the other hand, stillmanages to show some leftie stuff--even with the fear we've put into them with Ken Tomlinson and the Corporation for Public Broadcasting's requirement of balance. (We know that there isn't always a right-wing side that's worth covering, but no matter--they MUST adopt the Fox News view of "fair and balanced" or funding will cease. Better still, let's just cease the funding anyway. Bill Moyers and his ilk is a threat to every multinational corporation that is attempting to protect its hordes of cash from the US treasury by offshoring jobs and offshoring all intangible rights.

Gail Collins notes the same mentality when she discusses the way Congress "saved" the Defense Department's budget to sponsor Nascar racers. Sacred Cows, Angry Birds, New York Times, Feb 19, 2011. Yes, that's right--Defense wanted to torpedo the funding, but Congress found it was too important to woo Nascar fans to the military-industrial complex way of thinking. They refused to cut it.

The newly ascendant Republicans have been howling that the deficit is so big, so threatening, that no target for cutting is sacred. "Everything is on the table. We're broke," said Boehner.

But the table is mainly crowded with stuff the Republicans didn't like to begin with. Family-planning money and environmental protection, but not oil tax breaks or Nascar sponsorships. "Sesame Street" is fair game, ut the Dayton 500 is untouchable.

December 23, 2010

Notice to Readers: A Taxing Matter will be online sporadically through the holidays. Regular postings will return on January 10.

One of the provisions of the $858 billion tax cut bill passed in the lame-duck session is another two-year extension for the "active financing" exception to the subpart F rules for taxation of the passive income of foreign controlled corporations. See Eggen, Active Financing Exemption to Cost Taxpayers $9 Billion, Washington Post, Dec. 23, 2010.

The beneficiaries of this provision are big banks with multinational operations and other big businesses who use the creation of their own financing subsidiary as a way to lower even further their already low US taxes. Remember that although the US statutory rate for corporations is somewhat higher than the norm at 35%, the effective tax rate is in fact lower than the norm, with US corporations among the lowest taxed of all the OECD nations. That means that the US is effectively a tax haven for corporations. Part of the reason that is so is that there are so many exceptions and special provisions worked into the corporate tax regime--exceptions like the "active financing" exception.

The active financing exception was supposedly eliminated some time ago. But lobbyists worked hard to get a transitional extension of the provision. And every year since then they've worked hard to get Congress to push through yet another extension and they've increased their efforts to get Congress to make the exception to Subpart F rules permanent.

This is similar to the way the research credit has worked. There is no question that research expenditures need to be taken into account one way or another in figuring a company's tax liability--new products depend on somebody doing the research. But there is a big question about HOW those costs should be taken into account. Under a conceptually rigorous tax system, research expenditures would likely be capitalized. But our system has long permitted a deduction. The credit for R&D is quite a different thing, and not at all justifiable economically and certainly not justifiable as a subsidy that will be worth the price by stimulating growth. INstead, it is a pet project of corporate lobbyists granted an extension each year by Congress that is essentially a pure giveaway--reducing dollar for dollar the corporate tax liability by the amount of money spent on whatever counts as R&D. The problem with that, of course, is that it generally is not growth-stimulating basic research (stuff that is more often done by university or government researchers than by corporate labs) but instead merely profit-enhancing fiddling with a product that allows the company to extend already overly long patent protection (and enjoy monopoly-like profits for even longer) or develop something that differs little from its predecessor product but can be labeled "new" for marketing purposes (and enhance monopoly-like profits for even longer).

Those proponents of lower corporate taxes--who have been lobbying Congress steadily on these issues for decades--have gotten Congress to pass a large number of corporate-friendly provisions with the purported purpose of stimulating economic growth that are really just subsidies for the biggest multinational corporations from Big Banks to Big Oil. So we have seen accelerated depreciation, and first-year partial expensing, and percentage depletion and "bonus" depreciation, and complete expensing--all much more generous than the true economic depreciation and all profferred as a way to stimulate growth.

There is not much empirical evidence to support that this kind of tax treatment results in growth. It correlates instead with increasingly steep increases in compensation levels for top managers (moving from 20-40 times the average worker to 200-400 times the average worker, with some CEOs being paid in a half a day what their average worker makes in a year) and with bigger payouts (either through stock buybacks or dividends) to wealthy shareholders (taxed now at extremely preferential rates compared to the rates of tax paid by ordinary workers on their income and, in the case of wealthy managers and shareholders, likely invested in offshore gambits rather than plowed back into the startup of new enterprises in the US).

The active financing exception fits right in with these others. It is a boon for companies like GE, that use their controlled foreign subsidiary to serve as a financing arm for foreign sales and thus avoid US taxation. But wait, you say. Doesn't that do just the opposite of what is claimed? Wouldn't that make foreign sales easier, cut tax revenues in the US, and do nothing but encourage GE to increase its foreign manufacturing and sales rather than increase its manufacturing in the US and exports from here? Of course. Moreover, by giving companies an exemption for this type of foriegn income AND by having done one almost tax-free repatriation program in 2004 that was supposed to increase domestic investment but instead went to share repurchases (good for wealthy shareholders) and often correlated with huge worker layoffs, the policy is likely to be more associated with domestic corporate decline than with domestic corporation expansion. When one considers in addition the fact that the Great Recession is a direct result of finance-friendly policies gone awry, leading to too much interconnectedness among financial institutions, too much speculation in derivatives like naked credit default swap, and too much of a casino mentality generally among financing entities, the idea of providing a $9 billion bonus to offsore financing bogles the mind.

This Congress (and regretably this President) are too corporate friendly to see the problem. Mark my words: corporatism and all that it implies in terms of increasing social inequality and growth of an influence-heavy, uncaring wealthy elite that can call the shots in its own favor is the single most important topic that every American should be considering in making decisions about how to vote, who to support, what kinds of institutions we should support and how to interpret what people (especially judges) say about justice, fairness and equal opportunity over the next five decades. We should all make a New Year's Resolution to write one letter to Congress every week dealing with some aspect of this issue. If we don't shift this ship of state to at least treat ordinary workers equal to the corporate oligarchs, the democracy we all take for granted will cease to exist. Anti-trust, unions, and democratically egalitarian tax policies are all needed in this effort that should break up the megalithic multinational corporations (especially the "too big to fail" banks), permit workers to form unions more easily rather than being harassed by their employers (a majority of American workers want to unionize but very few are in unions because of the way our national laws have shifted to favor employers' efforts to keep unions out so that the company managers and shareholders can harvest all of the productivity gains for themselves), and eliminate the many tax provisions that continue to redistribute income upwards to the elite (including most of the mortgage interest deduction, the charitable contribution deduction, expensing provisions, and of course the preferential rate for capital gains and the nontaxation of much of the income of the wealthy). Although not the biggest item, the international taxation provisions like the active financing exception that permit large corporations to defer taxation of their income need to be eliminated.

November 15, 2010

One of the worrisome results of the 2010 mid-term elections is the increasingly radical fringe that is now installed in the House (and in state houses and in some Senate seats). Witness the possible head of the House Energy and Commerce Committee, Shimkus of Illinois (Republican), who has asserted that it's a waste of time and effort to worry about global warming, because he happens to believe that God has promised not to flood Earth and so it just won't happen. See Stromberg, In the GOP's House, God Won't Allow Global Warming?, Washington Post, PostPartisan (Nov. 12 2010). (This is like the wishful thinking that the biggest oil spill in history hasn't really done any harm to the oceans--ignoring, of course, our inability to measure the impact in most cases, our ignorance of the long-term effect of the dispersant chemicals used, and our willful blindness to existing problems on beachers, in marshes and in the warmer waters near the mainland.) Instead, Shimkus and his ilk will likely try to use the House's investigative powers to put a stop to sound regulatory advances at the Environmental Protection Agency and other departments.

Meanwhile, the irreality train of Sarah Palin's influence on right-wing politics rolls on forward, with her infomercial running on "The Learning Channel" (a clear misnomer in this case, unless learning how insipid Palin and her family can be counts as "learning") as a backdrop for her continued influence in the 2011-12 Congress and the 2012 presidential election. This is a person who takes pride in meaningless homilies, quit the only challenging job she has ever held when it either got too stressful (various ethics challenges) or not remunerative enough (various fashion challenges), has a hit-or-miss education that she hasn't bothered to improve with self-educational efforts (like reading 2-3 of our major national papers or reading various nonfictions works, etc.), and is content using the "sling dirt whether true or not, support it with lots of corporate money, and hope some of it sticks" techniques developed in the Reagan campaign and perfected by Bush's "turd blossom" karl Rove. Americans will continue to hear that "real Americans" care about the things Palin cares about and that the cures for what ails us are more of the same policies that made us sick in the first place, stated as simplistic slogans that evoke dreams of personal liberty and frontier rigor, and nightmares of government corruption and Pentagon $7000 toilets. As a fellow blogger Maxine Udall has noted:

Whether we like it or not, our technical solutions are competing in a morality play scripted by interest groups and mama grizzlies who in 25 words or less conflate small government and something they imagine to be "free markets" with individual liberty, a key justice principle. Most sound techocratic solutions are difficult to convey, must less motivate, in 25 words or less (and the motivation is often moral as well as technical: more for most, more for less, prices as reliable signals of marginal social cost, reducing unemployment, increasing inflation to discourage saving and stimulate spending ... you get the idea). But the larger problem, I think, is that allegedly "amoral" economists view the moral sequelae of sound economic policy, such as banksters' gains (at taxpayer expense), as "side issues" that are irrelevant to restoring the economy, while some of "we the people" view it as one of the most important issues. We end up with....the Tea Party (or, at least, with a large portion of the population who are extremely resentful and angry at being unemployed and underwater while the economy romps upward at least for those whom we bailed out). Technocratic Solutions and Moral Dilemmas (the preceding, by the way, is just a very small excerpt of an interesting piece on the problem with what I have called "mathaholic" economics and the failures of the Chicago School's approach to setting policy based on a theory so infused with unrealistic assumptions that the policy prescriptions amount to suggesting that Alice drink a counter-potion to undo her shrinking in size and fall through the rabbit hole).

And then there are the right-wingers arguing for a full austerity budget in the US, which supports, primarily, the idea of cutting Social Security and Medicare benefits while letting military costs continue to rise unabated and for reducing corporate taxes so that Big Business (read--U.S. multinationals) can "compete" more successfully globally without the "burden" of US taxes. See my earlier post on the Peterson-Pew "deficit crisis" mentality and the Bowles-Simpson commission. And then look at Robert Samuelson, How to Avoid Japan's Economic Mistakes, Washington Post (Nov. 15, 2010). Samuelson asserts that the time for stimulus is long past and the only thing to do is to get the private sector going. He claims to base this urgent assertion on Japan's experience, when it continued to borrow to fund public spending, but overall growth has been anemic. He asserts Japan's problem is two fold: 1) a "dual economy" where robust exports had to make up for anemic domestic consumption, an economic model which folded with the yen's appreciation in the 1980s and 2) an aging, declining population with low wages and insecure jobs.

His prescription of course, is the same old right-wing prescription--less regulation, more support for big business to remove "uncertainties" (which has become a euphemism for lowering taxes/helping US MNEs to "compete").

So Japan's economy is trapped: A high yen penalizes exports; low births and sclerotic firms hurt domestic growth. The lesson for us is that massive budget deficits and cheap credit are at best necessary stopgaps. They're narcotics whose effects soon fade. They can't correct underlying economic deficiencies. It's time to move on from the debate over "stimulus."

Economic success ultimately depends on private firms. The American economy is more resilient and flexible than Japan's. But that's a low standard. Neither the White House nor Congress seems to understand that growing regulatory burdens and policy uncertainties undermine business confidence and the willingness to expand. Unless that changes, our mediocre recovery may mimic Japan's.

Samuelson conveniently skips over three important things--two a big difference between the US and Japan, and the other a similarity. First, Japan had a historically high savings rate and, though that has gone down with Japan's economic decline, it meant that Japan didn't have the kind of domestic spending pattern that could sustain a low-export economy for any length of time. So making interest rates low didn't help, and government spending couldn't be sufficient to overcome. Second, the US has already embarked on various "quantitative easing" solutions that should have a positive impact--the loosening of the money supply will provide more money floating through the economy, allowing private and public job creation to take place more easily.

Third, both countries share the stagnation of middle class wages--and what is worse in the US is that we have at the same time huge increases in inequalities as the "investor/manager class" continues to reap all the rewards of the economic system and be favored by the tax system so that it reaps most of the subsidies provided that way as well (the huge part of the benefit of the extra large housing mortgage interest deduction is enjoyed by the wealthiest Americans, who itemize and who have sufficiently large and numerous homes to easily use the full deductible interest limitation of $1.1 million combined acquisition and home equity loans; the benefit for various manager-level retirement plans is enjoyed primarily by the rich; etc.). Until that problem is resolved, it will be unlikely that the US will recover the kind of broad-based growth that provides a sustainable economic environment and quality of life for all.

The reason all of this is worrisome, of course, is that the two-party system (with the avid assistance of the Tea Partiers) is heading towards unanimity on the biggest problem facing us at this time, and their answer is the wrong one, one that fails to understand the long-term damage to the economy of rampant increases in inequality along with stagnation or worse for the middle class.

The problem is the corporatist agenda--"Big Business" using its money and power to write the laws to suit it, and the owners and managers of Big Business using their money and power to ensure that all of the rewards of the economic process go to the top, while programs intended to buffer the ill winds that blow for the middle class and low income Americans are decimated. (An agenda made all the more easy because of the right-wing-dominated Supreme Court's recent decisions, including Citizens United.) Money has become the be all and end all of politics, and Big Businesses--especially the big financial institutions-- generally have the money to buy the politicians and the laws that they like. Courts and legislatures favor business over individuals.

Obama is not apart from this--he has never been a real progressive, and his policies are in the same tepid, center-right position that Clinton occupied or even slightly to the right. As a commenter on a Washington Post article on Palin's TV infomercial noted,

[Obama largely] insists on continuing Bush's policies, or insufficiently curbing them. It is policies that serve the rich that are destroying us; these are policies that are traditionally identified with the Republicans, but in recent decades, the Democrats have learned to bow and scrape for big money from the lobbyists and either party is as abjectly servile to the wealthy as the other.

*****

[T]hose managing [Palin] as a media creation are using her to push the perceived center further to the right than it already is, which will allow real candidates for the Republican nomination to recycle the radical orthodoxies of the far right and still seem "moderate." Candidates for the Democratic nomination will be required to similarly hew further right, so as not to seem like the "socialists" or "communists" they have already been labeled by the rightwing lunatic fringe.

Palin makes big bucks and doesn't have to actually learn or do anything, while becoming the philosophical lodestar for the right, and our entire political system is transformed into a battle not between left and right but between right and extreme right. Robert 1014

There is no reason to expect that tax cuts for the wealthiest 20% of the country will do anything to support job creation for the rest of us or to help stem the tide of the recession. But the GOP will push for tax cuts for their primary constituents no matter what the cost. There is no reason to think that changing our tax system to assist US multinationals in grabbing a larger market share in Asia or Africa in the name of "competitiveness" will do anything to help ordinary Americans in the middle class here at home. But both parties will continue the disastrous mix of tax cuts for corporations and policies that pull back on anti-trust and make unionization more difficult in the name of helping companies compete. Obama and the mostly spineless Dems who don't ever stand up for their purported policy positions--whether in contesting the appointment to the Supreme Court of radical rightwingers like Alito and Roberts or in battling with the GOP for a public option in health care reform or in fighting to preserve a highly progressive income and estate tax--will likely just roll over and play dead while the wingnuts on the right move our country more and more into the radical right of the Bircher Society, Clausen, and Milt Friedman's radical "free market" agenda that socializes losses and privatizes gains.

November 02, 2010

I voted this morning in the mid-term elections. Did you? I am nonetheless a frustrated citizen who is deeply worried about the future of my city, my state, and my country. And while I am deeply disappointed in the Dems' ability to translate progressive ideas in to working legislation and change, I am even more deeply disappointed in the loss of a moderate GOP voice and the way most of the GOP candidates embrace the corporatist agenda.

While I understand and even empathize with some of the anger and frustration expressed by the Tea Party groups, I am very worried about their impact on this election in light of their apparent lack of comprehension about the essential problems facing us and their failure to understand that it was the four decades of Reagan-inspired policies of deregulation, militarization, privatization and tax cuts that got us deep into these problems culminating in the Great Recession of the Bush Administration and the too-lax TARP bailout provisions for banks. (The bank bailout was, I believe, necessary by that point, but it could have been handled--as I argued at the time--by methods that would have exacted a much higher price from bank managers and shareholders, without the Paulson-originated, bank-friendly provisions that allowed bankers to retain (privatize) their gains while casting on us (socializing) their losses.)

The Tea Partiers, in other words, have muddled ideas that forecast wrong-headed policies on taxes, finances, income inequality, the role of unions in protecting the U.S. middle class, and the role of the big multi-national corporations in influencing government to favor their own businesses and the rich who own or manage them (via lobbying and especially since the Supreme Court's Citizens United case, via the use of huge sums of money to influence elections and essentially buy legislation made to order). The Tea Party groups in particular misinterpret the corporatist agenda that pits large corporations and their wealthy managers and shareholders against the vast majority of hard-working, middle class Americans and that casts unions (in spite of their undeniable flaws and failures) almost as evildoers, rather than what they actually are--the only successful means that the middle class has to create a level playing field so that workers can get their fair share of productivity gains mostly produced by them. Further, the Tea Party groups seem incapable of recognizing that their visibility and influence is being bought by those very powers that consistently work to suppress middle class gains--the anti-tax, anti-union, pro- "free market" purported think tanks and lobbyists and wealthy businessmen and the right-wing media empires of huge corporations such as the Sinclair stations, the Murdoch media empire (Wall Street Journal, Fox News, etc.)-- such as the Koch brothers and Dick Armey's so-called Freedom Works.

"Free market" is in quotes because there is no such thing as an absolutely free market: to the extent that we shift the balance too far towards business "freedom" and too far away from consumer--and environment--protecting restraints, we take away everyone's freedom to live decent lifestyles in a sustainable economy within a sound environment. Markets are wonderful, but the ability of businesses to compete "freely" in fact requires a number of restraining and opposing influences to avoid the inevitable development of self-perpetuating monopolies and oligarchies from asymmetries of information combined with the natural biases and follies of humans (including the corruption from money and power, the self-interested actions that can cause significant detriment to others from sheer greed), not to mention the vulnerability of ordinary people left to suffer from the brute-force harms of such "free" markets. Government regulation/remedies (administrative and judicial) and worker unions are two necessary restraints on unbridled corporatism.

So let's hypothesize that many of the right-leaning GOP and Tea Party candidates are elected. Here's my prediction of the policies that will be pushed by this right-wing coalition.

Taxes: likely passage of various bills reducing corporate taxes either temporarily or permanently, including 100% expensing, repeat of the 2004 almost tax-free repatriation of foreign profits, further extension of tax-free restructuring provisions (the Bush Treasury through regulations practically gave away the store, and there appears to be a wholesale commitment to continuing the rush to make gain recognition as a part of a tax-free reorg a thing of the past, and make loss recognition as a part of a tax-free reorg a thing of the present); likely attempt to make the Bush tax cuts permanent for everyone including the wealthiest amongst us or at least to extend them for another 2 years until the 2012 election possibly restores a GOP president to make them permanent; likely renewed attempt to repeal or sharply reduce the estate tax that even in its pre-Bush form was paid by a tiny minority of estates each year and paid at a very low effective tax rate by many of those few that paid it; discussion of tax cuts by the GOP/Tea Partiers won't address the role these cuts play in creating deficits or in reinforcing a harmful level of income inequality that threatens the very heart of democratic governance. We definitely won't get legislation cutting the carried interest entitlement out of a right-dominated Congress--the capital gains and deferral advantages that private equity and hedge fund managers glean through their interpretation of the partnership rules for "profits-only" interests would be allowed to continue, generating multi-million dollar low-taxed income and encouraging a continuing distortion of the allocation of endeavor towards this high-income, low-tax-producing work and away from other endeavors that would be better for the economy (such as engineering rather than financial engineering, etc.). In other words, we can expect a resurgence of the many-times-now-proven-wrong-"freshwater"-economic-free-marketarian and Laffer-style budget and tax ideas, carried out even more extremely!

Dodd-Frank financial institution regulation: attempt to undo or deeply eviscerate many of the protections for the financial system disliked by the Big Banks, particularly the (limited) ban on proprietary trading, potential for naked credit default regulation, and the existence and powers of the Consumer Financial Protection Agency (which is the primary part of the bill that addresses the way that big banks use their clout to collect from customers at every opportunity while making it enormously hard for customers to fight back when they are treated unfairly by the banks)

Social Security: drive to dismantle post-war protections for the poor and elderly, through partial or whole privatization and reduction of benefits; use of the worries about the deficit as the power for wielding the ax cutting old age security benefits (in spite of refusal to forego any of the Bush tax cuts which will cost $5 trillion over ten years, if extended). Job creation will be touted as a rationale for most of this, though it is a very unlikely outcome. (There will be no further stimulus package of public infrastructure spending which would have a decent chance of saving, creating jobs.)

Health care: drive to dismantle the progress made towards a fairer health insurance system out of a distorted understanding of the way that non-insured individuals require insured individuals to cover their expenses and a failure to comprehend the way that health insurance companies benefit from the ability to arbitrage 50 states' rules to select those that serve them best and serve ordinary Americans least

Environmental and Global Warming Efforts: drive to dismantle anything already done to address the significant harms from global warming and environmental pollution (including toxic chemicals in our land, air and waterways); attempt to open the Arctic National Wildlife Refuge to oil drilling; attempt to give all the rest of the US reserves to the oil companies along with even more tax cuts for the natural resources extractive industry (which will be touted as "incentives" for development); attempt to peel back protections for endangered species, particularly wolves and small creatures whose protections are seen by the right as "threatening" lucrative developments in wilderness settings; attempt to ensure that the National Forest Service serves the forestry industry with even more roads and cheap sales, rather than putting forest and wilderness protection goals above commercialization/privatization of the national forests

Gun laws: attempt to peel back gun registration provisions--moving even closer to the absurd "wild west" model apparently sponsored by activist right-wingers on the Supreme Court providing for open carrying of handguns in bars, coffee shops, stores and public meeting places

Unions/public employees: attempt to ensure that the corporatist agenda succeeds in the workplace by continuing the process of distorting American's views of the role of unions in protecting workers from corporatist power and by weakening even further American workers' ability to organize and by giving employers even more "rights" in the context of a union drive; in particular, at the state level we can expect drives to cut public employee pension benefits and cut state funding of pension plans, and at the national level we can anticipate continued demonization of federal employees as lazy bureaucrats protected by public employee unions from merited discipline and firing

Elections: refusal to pass laws forcing full disclosure of all corporate donations related to elections on the corporations' financial statements, SEC filings and on publicly available filings of all 501/527 organizations receiving corporate donations; refusal to write disclosure rules forcing public information regarding major individual or other noncorporate donors to organizations engaged in election campaigning

Military/war: little or no commitment to removing the impediments for gay servicemen and women;no commitment to cutting military expenditures and even likely some support for pushing the Pentagon to continue with expenditures that it has already determined are inappropriate and wasteful; little commitment to pushing for a pull-back from foreign invasions/occupations and even possible push for renewed "surges" in Afghanistan; likely commitment to increasing military support for Israel in spite of its continuing violation of international law on colonization of occupied territories; likely push for aggressive response to Iran, including warmongering

Worth noting: if the election results in the GOP controlling the House and the Dems the Senate (and presidency, of course), we will likely have gridlock. The GOP agenda won't be likely to be enacted because of that gridlock. Accordingly, everything above is in terms of where their attempts, commitments will be, not what they will succeed in doing. But what will they actually do? Mark Thoma, Economist's View, Gridlock? Not in Politics (Nov. 2, 2010), speculates that they will "take advantage of this by introducing legislation they know won't pass but scores political points by forcing Democrats to vote against it...then use the noise machine to talk about how terrible this is for America. We'll see Tax Cuts for Working Americans (where you give a few pennies to the masses, much, much more to the upper echelon, then, since there are so many people getting small breaks, claim that the majority of the tax cuts go to the middle and lower classes), the Deregulation of Apple Pie Act (which somehow turns into an attack on the FDA, financial regulation, etc., etc.,), we'll see poison pills attached to legislation that must be passed to operate government...." Thoma also castigates the Dems (appropriately, I think) for failing to "take its arguments to the public and convince them that they were, in fact, fighting for their interests. ... Instead, they allowed the other side to take the initiative and demagogue the policies without much of a challenge." When will the Dems ever learn?

November 01, 2010

The so-called tea party adherents and many libertarians, treat taxes as robbery, thinking that "it's mine and the government has no right to it." That crazytalk, which most would realize if they ever had the opportunity to live in the brute-force world of no taxation. It would be oligarch rule or the wild west without the civilizing influence of towns with governments and sheriffs to keep order.

With midterm election day just around the corner, maybe it's worth reminding everybody about the reason that all advanced countries have strong tax systems. It's likely the case that none of us really enjoys paying taxes, and some of us complain about them all the time. But most of us recognize that taxes are a necessary part of supporting a democratic government and a civil society. Without a tax system, the rich and powerful would be able to do whatever they wanted. There'd be no FBI or SEC to investigate their wrongdoing, no cops to arrest them, no courts to bring them to justice, no prisons to put them in. Most of the rest of us would be subjected to conditions closely resembling slavery--or at least the conditions of the early twentieth century, when mineworkers could be bullied, beatup and even killed by "Pinkerton" thugs hired by mineowners, when union representatives might be murdered to keep them from inspiring workers to join together to fight the owners for reasonable wages and benefits, when old people had nothing but the charity of neighbors and families to live on, because companies didn't provide pensions and there was no Social Security organization in government.

As Oliver Wendell Holmes said, taxes are the price we pay for a civilized society. Luckily, there is an increasing attention to this issue in the blog world, to counter the "taxes are evil" mantra of the neo-conservative and libertarian right.

Taxes support democracy. Taxes fund government services and goods, including court systems and national defense, which protect your life, your property, and your constitutional rights.

Taxes support economic growth. Governments use taxes to encourage economic growth in numerous ways such as maintaining a stable currency, enacting and enforcing laws that protect both workers and employers (their life and property), and helping to build and maintain large and dependable energy, transportation and communication systems.

Taxes support your daily quality of life. Taxes help you and your family buy a house, breathe clean air, have safe food and drugs, and travel safely and efficiently on highways, trains, and planes. Taxes help pay for your health care (in the form of tax benefits or direct care) and they pay to educate you and your family. Taxes help you at work (e.g. enforce contracts, provide safe workplace) and help you at play (e.g. national parks).

The topic of executive compensation has received tremendous attention over the years from both the research community and popular media. In this paper, we examine a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies - an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy. We discuss the implications of our findings for organizations and offer some solutions to the problem.

Trends in this country are ominous.

Wages for the middle class have stagnated, especially with the waning power of labor unions to demand an adequate share of corporate revenues (a result of the decades-long effort of neocons and multinational corporations to kill labor unions and make new unionization efforts in previously nonunionized industries very difficult through generous provisions for employer control and significant hurdles for union approval).

The middle class has therefore depended more on debt than it should, a dependency that has been encouraged by the financialization of the economy and the hunger of the financial institutions and shadow banking system for "product" from which it can reap multiple layers of fees and excess profits. That easy flow of credit led directly to the financial crisis that caused the Great Recession.

Meanwhile, those at the top have done well and those at the very top--the ultra rich in the top tier of corporate status and in the finance (and shadow finance) industry and its related hangers-on--have done exceedingly well by being able to keep a much larger share of the business profits for themselves.

That inequality then has created a feedback cycle of disrespect for ordinary workers and greed for more profits and status and power that also led directly to the financial crisis that caused the Great Recession.

And now we learn the capping blow (which common sense tells us anyway, given what we know about human nature and its frequent inability to handle the struggle between self-interest and altruism in ways that benefit all) those at the top who have been paying themselves exceedingly well (and their buddies when they serve on their boards of directors) are likely to treat their employees exceedingly poorly. Greed at the top goes along with meanness towards those considered "beneath" them.

From my perspective this is just one more reason (i) to ensure that ALL compensation income is subject to payroll taxes (removing the Social Security cap) and (ii) to increase the tax rates on the income of the top by adding more rate brackets. We should go back to the type of system we had before Reagan, when there were many more "rate brackets" under the income tax. It's really not reasonable in a progressive tax system to fail to distinguish between incomes of a quarter million and incomes of $10 million--they should not be taxed at the same marginal rate. And the hedge or equity fund or real estate partnership manager who makes more than a million a day as his compensation for managing (paid, of course, part as fee and part as "carried interest") should be taxed at a rate considerably higher than the CEO who makes "only" 10 million a year. The wacky system we have right now lets that equity fund manager pay the preferential capital gains rate under a realization system--meaning with deferral as well as lower rates!

So why is it that Congress--even in a period of high deficits and lots of talk about having to change the benefits under Social Security because of the GOP and blue-dog Dems' worries about the deficits (even though Social Security has actually been running a surplus) --couldn't bring itself to pass a bill that would treat carried interest as the ordinary compensation income that it is, so that fund managers would pay tax the same way that their firm's janitor does? Talk about meanness.

January 14, 2010

According to this morning's news reports, "congressional leaders" have reached agreement on an excise tax on health insurance, the main revenue-raiser in the Senate version of the health care reform bill. The Senate wants to tax at 40% the coverage amount of so-called "cadillac" policies (defined as $8500 for individuals and $23000 for families)--i.e., good health care plans that all of us would like to have and that union workers often have as one of the benefits of the power of collective bargaining. The facts aren't really out, but the news says that there is now a deal on the excise tax to make it somewhat more palatable. See Herszenhorn, Democratic Leaders Reach Compromise on Taxing Health Plans, NY Times, Jan. 14, 2010.

I oppose this means of funding health care reform. It does not strike at the issue--which is the fact that many people have too little insurance and that even the insurance people have doesn't provide adequate health care benefits because of the privatized benefit to health insurance companies of taking a significant spread between the cost of the health care actually provided (which they seek to minimize through bureaucratic decisionmaking and jargonese that cheats the insured person) and the amount paid to providers (which they seek to minimize through clout based on scale). Instead, it strikes at unionization (a reason that Republicans and right-wing Dems pushed for this version of revenue-raising). Unions are the one way that employees have to gain some clout in bargaining with their employers. With the decline of unions, wages and benefits for employees in the US have not kept up with the substantial benefits that employers grant themselves (many of them tax-subsidized). Attacking unions and not providing better or even equal health care to union workers, by attacking the health care plans that unions have fought to provide for their employees, is a disastrous way to pay for even the little bit of health care reform that this package will provide.

The House version makes much more sense--the House bill calls for an income surtax on wealthy taxpayers--those who make $500,000 or more (individuals) or $1 million or more (couples). That's a reasonable way to pay for the bill. We have had much higher tax rates in the past, and had good, broad-based economic growth. The four decades of reaganomics have moved us to a system that is hugely beneficial for the rich and bears down too hard on the middle class (which one could generally define as the middle three quintiles of the income distribution, all of whom make substantially less than $500,000 annually). We need to raise the tax rates on the upper income distribution, to counter the trend towards harmful levels of income inequality while also countering the trend towards low effective tax rates on the upper crust. Raising the rates through a surcharge to pay for health care reform makes sense--it doesn't take health care away from the middle class as the Senate bill does, but asks more of the upper crust which has enjoyed increasingly singificant benefits from the US financial system over the last few decades.